World stocks at record high after Fed hike; dollar falls

By Stephanie Kelly

NEW YORK (Reuters) - A gauge of world shares rose to further record highs after the Federal Reserve announced a widely expected interest rate hike on Wednesday, while U.S. Treasury yields and the dollar fell.

MSCI's gauge of stocks across the globe <.MIWD00000PUS> gained 0.28 percent.

The Fed, as anticipated, raised interest rates by a quarter of a percentage point, but left its rate outlook for the coming years unchanged. The central bank lifted the federal funds rate to a target range of 1.25 to 1.50 percent, and also projected three more hikes in each of 2018 and 2019.

Kate Warne, investment strategist at Edward Jones in St. Louis, said the Fed's statement was "pretty much as expected" but slightly more dovish.

 

"So it's not a big surprise but it's a shift in the direction of saying the Fed is going to keep watching the data and if we don't see higher inflation we could see fewer rate hikes in 2018," Warne said.

While the Dow and the Nasdaq Composite closed higher, the S&P 500 dipped under pressure from the financial sector after the Fed's announcement.

Investors were also focused on efforts by President Donald Trump's administration to overhaul the U.S. tax system. Congressional Republicans reached a tax legislation deal on Wednesday, according to Senate Finance Committee Chairman Orrin Hatch.

The Dow Jones Industrial Average <.DJI> rose 80.63 points, or 0.33 percent, to end at 24,585.43, the S&P 500 <.SPX> lost 1.26 points, or 0.05 percent, to 2,662.85 and the Nasdaq Composite <.IXIC> added 13.48 points, or 0.2 percent, to 6,875.80.

The pan-European FTSEurofirst 300 index closed <.FTEU3> down 0.30 percent.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> climbed 0.67 percent.

Japan's Nikkei stock index <.N225> finished lower, however, pressured by a strengthening yen and shrugging off upbeat economic data that showed Japanese core machinery orders rose an unexpectedly high 5 percent in October.

YIELDS, DOLLAR INDEX FALLS

U.S. Treasury yields fell after the Fed's announcement. Yields had fallen earlier in the day as well after an increase in core consumer prices in November fell short of analysts' expectations.

Benchmark 10-year notes > last rose 16/32 in price to yield 2.3457 percent, compared with 2.403 percent late on Tuesday.

The 30-year bond > last rose 1-2/32 in price to yield 2.7285 percent, compared with 2.781 percent late on Tuesday.

Earlier Wednesday data showed the U.S. consumer price index, the government's broadest inflation gauge, grew 0.4 percent last month, matching economists' estimates.

However the CPI core rate, which excludes energy and food prices, moderated to 0.1 percent from a 0.2 percent increase in October and was below market expectations.

Traders also mulled the potential implications of Democrat Doug Jones' victory in the special U.S. Senate election in Alabama on Tuesday, which thinned the Republicans' Senate majority to 51-49, raising discussion about their ability to pass tax legislation before year-end.

The dollar index <.DXY>, which weighs the greenback against a basket of currencies, fell 0.72 percent, while the euro was > up 0.71 percent to $1.1823.

The yen strengthened 0.92 percent against the greenback to 112.50 per dollar >, while sterling > was last trading at $1.3416, up 0.76 percent on the day.

U.S. crude fell 0.72 percent to $56.73 per barrel and Brent was last at $62.59, down 1.18 percent.

Gold prices rose later in the day after hovering near their lowest in nearly five months. Spot gold was last > 1.0 percent higher at $1,255.93 an ounce.

(Reporting by Stephanie Kelly in New York; Additional reporting by Rama Venkat Raman and Sruthi Shankar in Bengaluru, Richard Leong, Sinead Carew and Karen Brettell in New York, Danilo Masoni in Milan and Julien Ponthus in London; Editing by Steve Orlofsky and James Dalgleish)